Pilot Project Success

Alignment Of Interests Critical To Pilot Project Success

Thursday, October 13, 2016

Daily Oil Bulletin

The ultimate success of a pilot project can depend as much on establishing common interests between the technology provider and producer as it does on the technology tested, say those familiar with operating them in the capital intensive oilsands sector, where pilots can add up to hundreds of millions of dollars.

“I think having awareness of what the end user finds important is really critical,” said Joe Kuhach, chief executive officer ofNsolv, which is currently operating a bitumen extraction solvent technology (BEST) pilot project with Suncor Energy Inc. “As the inventor or innovator that is trying to take an idea forward, sometimes you are very focused on very detailed technical aspects that you might want to resolve, but ultimately may not really be that important in the end.

“So you really need to have the conversation with [the] technology adopter to make sure that you are going to be answering the specific questions that they need answered in order to take the technology to the next step. I think communication and awareness of what the market really wants is really critical to a successful pilot and getting to that next step,” Kuhach told a recent Calgary Economic Development,Kinetica Ventures and Bennett Jones co-hosted event,Innovate Straight Talk: a conversation about getting energy tech innovations to market.

“It is very important to identify what problems are being answered as part of that pilot and what exactly it means between the two parties, to make sure that the two are aligned,” added Adrian Banica, executive chair of Illusense Inc., aUniversity of B.C. spinoff tech company. Banica also foundedSynodon, a tech start-up that uses remote sensing technology originally developed by the Canadian Space Agency to detect pipeline leaks.

Wayne Monnery, vice-president of research and director,XERGY Processing, Inc., said technology providers tend to be overly focused on their technology. “We need to back up a little bit and find out what is important to our partners. We know what’s important to us—what’s important to them?

“It sounds easy but it’s not that easy because we are concentrating on those technical details and we need to back off a little bit and see what else goes on… We need to look at the market and say, ‘what is the technical sweet spot for this technology?’ Once we establish that, that will help us, for example, economically work backward and say, so if we want a successful pilot, and we know the sweet spot in the market is a certain size or capacity, let’s work backward from that. It’s all in the planning.”

Mark Bohm, Suncor manager of technical development, noted the incentives and objectives for technology providers don’t necessarily align with those of producers. “A technology provider is going to want to get something to market as quickly as possible to make money as quickly as possible. We want to make sure that we are employing a technology that is going to make us money over 25 years of development. So we both want to advance technology, but our risk tolerance is different… It all comes down to getting closely aligned very early on what you are trying to achieve, and in a pilot that’s critical.”

He stressed the importance of developing a clear commercial hypothesis and pathway to commercialization. “You have to ask, ‘what are you trying to solve?’ When a technology provider comes to you, you need to work with them for a little bit to help them to flesh out what their technology is trying to solve.

“If we ignore the risk and assume that we can get something that will work as we think it will work, then the first thing you need to ask is, ‘is it going to be preferable in a commercial sense over what you are currently doing, or is it going to address a problem that you have?’”

Bohm added: “A hypothesis should be continuously updated as you go along through from the very early idea to developing a concept, to piloting, right through to demonstration and commercialization—you are constantly evolving that hypothesis, and constantly testing it.”

Part of the reason pilots are a challenge to initiate, and must be well thought out, is the high cost involved. Companies need to ask some “brutally honest” questions up front before big dollars can be considered for a pilot, he said. “A pilot is the first time you start spending real money on a technology, from a large producer perspective. You start getting into the seven, eight figure numbers and that’s when it starts getting the attention of senior executives in our company, so you really have to make sure that you are clearly answering a number of the key technical questions.

“So in your planning, make sure you define what you are trying to achieve, and if you have got your commercial hypothesis, you can also surface what the major questions you are trying to answer in the pilot are and identify what the key risks are—not necessarily going after the minutia but what are the key three or four key risks you need to address and answer to evaluate for commercial success,” said Bohm.

Not all technologies cost multimillions of dollars to pilot, but their piloting can become extremely complex, said Banica, whose company is piloting an ultra-high resolution laser-based pipeline inspection technology. The technology employs the accuracy of multiple lasers to create a 3D profile of the pipeline interior as it travels through the pipe. The collected data is analyzed to identify various wall defects such as dents, cracks and corrosion down to 10s of microns in size, enabling pipeline operators to better identify high risk defects and target their repair and maintenance efforts more efficiently.

While it is relatively simple to show its effectiveness in a laboratory setting, it degrades in a pipeline to varying degrees that must be determined in pilots. “What industry really wants to look at is, how does it degrade in a particular operating environment? Every single pipeline operator is different—you get different deposits, different surfaces, different linings, all sorts of impurities in the product. So how do you even devise a valid pilot project to do one or two pilots and then demonstrate to the rest of the industry that it will work in their pipeline?”

While the pilot itself might only cost $50,000-$100,000, it doesn’t guarantee commercial success, Banica said.“All it really does is, it answers specific questions in the mind of your customers—does this technology work, does it accomplish those performance criteria that you claim that it does. Taking that and actually bringing it to market, having a successful commercial deployment is a different story, especially on the sensor side of the business—you are building credibility.

“We are trying to really constrain the parameters that we are trying to test for, and trying to get into as many environments potentially as possible, but that pilot is extremely complicated and it takes the co-operation of a whole number of different operators to try and get it into as many different scenarios as possible.”

Founded in 2003, Nsolv spent over a decade promoting its solvent technology before Suncor agreed to put it to the test via the pilot project at its Dover lease in 2014. Kuhach concedes it is a costly proposition to take the technology from the lab to the field—or crossing the so-called valley of death that claims many technologies that don’t ever get out of the lab. “When you are putting a pilot in you are starting to spend, certainly from the smaller company’s perspective, very real money. In the oilsands pilots can be tens of millions of dollars and getting to that commercial stage is likely going to be hundreds of millions of dollars, so you have got some key questions that you have got to define very well and specifically answer.”

With in-situ oilsands deployments, there can be a high level of uncertainty added to the high cost, and the only real way to know if it will work is to run the pilot. While surface facilities may be well understood, what is going on in the reservoir is largely guesswork. “You never really see what’s going on underground. You have computer models and you can look at what you think is going on, but chances are they are not right—it’s just a matter of how wrong are they, so it is always a bit of guess work as to what is going on,” said Kuhach.“I think there is a balance and you have got to identify where am I going to get the most bang for my buck and answer the key questions that I have to get to the next step.”

While Nsolv has benefitted from evolving market forces—today’s emphasis on low greenhouse gas emissions, low water use technologies plays into the hands of Nsolv’s production technique—technology providers need be cognizant of changing conditions, such as the emergence of competing technologies or changing market dynamics, Kuhach added.

“One thing you need to be aware of as you are developing a technology are potential things that might blindside you, so if you are moving forward with something that you might think might change the industry, you have to have your eyes wide open in the process. Other technologies can come in and make yours obsolete, potentially before it’s ever even ready to go. The awareness side is being mindful of those things that could really undermine your ability to actually commercialize your technology.”

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